RSI Divergence

The RSI Divergence indicator calculates the difference between a fast and a slow Relative Strength Index (RSI) to identify shifts in momentum and potential trend reversals.

Usage

The Usage section describes how the script can be used to identify market entries and momentum shifts. The indicator primarily functions as a momentum oscillator centered around a zero line.

• Zero Line Crossings: This is the primary signal method. When the RSI Divergence line crosses above the zero line, it indicates that short-term momentum is strengthening relative to the long-term trend, often interpreted as a buy signal. Conversely, a cross below the zero line suggests weakening momentum and a potential sell signal.
• Divergence Analysis: Users can compare the peaks and troughs of the indicator against price action. For example, if the price forms a double top while the RSI Divergence produces a lower peak, it may signal an exhausting trend.
• Trend Strength: The distance of the line from the zero mark indicates the intensity of the divergence between the two RSI periods. High positive values suggest strong bullish momentum, while low negative values suggest strong bearish momentum.

Details

The RSI Divergence is constructed by subtracting a "Slow RSI" from a "Fast RSI." By default, the fast period is set to 5 and the slow period is set to 14.

Unlike a standard RSI which bounded between 0 and 100, this indicator creates a spread that oscillates above and below a zero median. This implementation uses the Relative Moving Average (RMA) for its internal RSI calculations, ensuring consistency with the classic Wilder’s RSI formula. The resulting value represents the velocity of price change over the shorter window compared to the established baseline of the longer window.

Settings

• Length Fast RSI: Determines the period used for the short-term RSI calculation. Lower values make the indicator more sensitive to recent price fluctuations.
• Length Slow RSI: Determines the period used for the long-term RSI calculation. This acts as the baseline against which the fast RSI is measured.

FAQ

How do I interpret the colors of the RSI Divergence line?
The line is colored green when the value is above the zero line, indicating positive momentum. It turns red when the value is below the zero line, indicating negative momentum.

Can I change the sensitivity of the signals?
Yes, by adjusting the Fast and Slow RSI lengths in the settings. Reducing the Fast RSI length will make the indicator react more quickly to price changes, while increasing the Slow RSI length will provide a broader trend perspective.

How do I get access to the RSI Divergence indicator?
You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.